​Commonomics USA supports proposal to create public bank in New Jersey modeled after Bank of North Dakota

Last week, New Jersey Democratic Gubernatorial candidate Phil Murphy proposed establishing a public bank, owned by the taxpayers and citizens of the state, promising "far-reaching positive impacts on countless businesses and communities" in the state.

Mr. Murphy is right: The best available evidence indicates that a state-owned bank, if run correctly and transparently, can indeed be a cornerstone of New Jersey's economic recovery.

The Bank of North Dakota saved jobs and cities during the 2008 financial meltdown. The Bank saved ordinary people's homes from being foreclosed upon, and family businesses from being shuttered. Like BND, a Bank of New Jersey will support infrastructure projects across the state.

In North Dakota, BND doesn't compete with community banks and credit unions. It supports them. That is why North Dakota has more local independent financial institutions per capita than any other state. Further, with BND's help, North Dakota community banks do six times more lending to local businesses than do banks elsewhere, including in New Jersey.

In fact, New Jersey and other states will realize five distinct economic advantages in choosing a North Dakota-style public banking model:

1. Public banks can save state and local governments significant amounts in interest payments and fees.

Like other states, New Jersey has lost hundreds of millions of dollars in interest and fees paid to Wall Street banks and financial firms to handle public money, from pensions to other deposits, and to borrow on credit. As Saqib Bhatti of the Roosevelt Institute has written, "[e]very dollar that banks collect in fees from state and local governments and pension funds is a dollar not going toward essential neighborhood services." This loss of state and municipal money is one of the largest financial scandals in American history; cities and states have paid Wall Street hundreds of billions of dollars, with governments having to cut vital services, and cities sometimes falling into bankruptcy. Public banks can do what private financial firms do, can do it better, and without the hefty interest and fees.

2. State and local governments have a fiduciary duty to manage money safely and effectively: to minimize risk exposure, ensure liquidity, and optimize earnings.

Wall Street banks have a notorious record of losing and gambling away public funds. Public banking means better, cheaper, and more transparent government. Studies have demonstrated that low-interest public loans produce more and better policy outcomes for less money than loans from private banks.

3. A public bank can help New Jersey, and other states vulnerable to natural disasters, respond quickly and build preventive infrastructure to mitigate harm from such events.

Just as the Bank of North Dakota responded to flooding and fires in Grand Forks in the 1990s, setting up cheap credit lines for North Dakota's Emergency Management, National Guard, its University and the City of Grand Forks, a Bank of New Jersey could have offered such credit in the wake of Hurricane Sandy. Flooded-out homeowners with mortgages held by the Bank of North Dakota and students with student loans held by the same received six month payment moratoriums. Moreover, a public bank can lend at extremely low credit to build shoreline protection infrastructure for the inevitable hurricanes to come.

4. A public bank can help state and local governments lead the transition to clean, non-carbon energy in production, transportation, and consumption.

As the most densely populated state in the nation, and a state with dormant transit lines and other green infrastructure waiting to be built or retrofitted, New Jersey can create model clean transportation and public facilities, with low-interest financing by a state-owned bank using money the state already has.

5. Just as the Bank of North Dakota helps generate and keep money in North Dakota, a Bank of New Jersey, and other public banks, will keep state and local money where it belongs.

Advocates and allies around the country repeatedly tell us that their states’ banking practices remove money from their coffers and their state economies, paying far-away shareholders and aloof national and multinational financiers. Public banks lend from their states and pay money back into their state treasuries, while assisting community banks in their mission to facilitate local economic development. This is particularly important in times of Wall Street bank credit contractions, such as in the 2008-2009 Great Recession. The counter-cyclical nature of public banking address systemic risk: public banks lend at low interest rates (and keep down credit default rates) precisely when private banks will not lend at all.

Naysayers will attack Mr. Murphy's proposal. Big banks and well-heeled equity funds will hate it, as they have elsewhere. They will make generic arguments against government involvement in banking, ignoring not only the uniqueness of public banks, but the numerous ways the government underpins the banking and financial services market with taxpayer subsidies (TARP), low cost public tax revenues deposits, and, with only a few exceptions, the exclusive license given to banks to use bank credit however they wish.

Opponents will claim that Wall Street banks can generate better returns on state money, ignoring the high costs incurred in interest, fees, and banking crises that have bled America's city and state budgets dry. Their arguments will assume that shareholder returns are more important than social benefits. They will rail against "political interference" with banking without accounting for the vast covert interference Wall Street imposes on federal, state, and local governments.

Above all, the naysayers will ignore or obscure the success story of the Bank of North Dakota, whose financial strength not only predates that state's oil boom (showing year-after-year profits since the early 1970s), but will, if managed correctly, ultimately help North Dakota's transition to a post-carbon economy.

We hope New Jersey public officials and public interest advocates will keep their eye on the ball and not be deterred. A state-owned Bank of New Jersey is a cause worth fighting for--one of New Jersey's most urgent economic and financial priorities.

It’s time to create financial institutions accountable to the public. We applaud gubernatorial candidate Phil Murphy for giving New Jersey public banking the spotlight it deserves.

Thanks for sharing this good news. The citizens involved with Banking on New Jersey, the Public Banking Institute%u2019s state affiliate, generated this development through contact with the candidate last year and are now working on a task force with key state policy leaders to bring it to fruition, and to provide some watchdog support so it gets realized with its public mission intact. We%u2019d be happy to have other state citizens support the effort and they can be in touch here JoanBartl@BankingOnNewJersey.org